I'm a restless VC hunting for cutting-edge technologies, maverick entrepreneurs and bold contrarian theses. I've funded or founded and serve on the Board of companies ranging from high-tech nuclear waste clean up (Kurion), breakthrough metamaterials with Bill Gates (Kymeta), 3D printing (Shapeways), emerging tech research (Lux Research) and much more. My life is the intersection of science and finance, and I believe the future is already here just unevenly distributed and that the best way to predict it is to invent it. I’m passionate about education reform and celebrating science and the right heroes. I Chair a Charter School (Coney Island Prep) in my native Coney Island Brooklyn, graduated from Cornell and am active term member at the Council on Foreign Relations. I hunt for low-probability high positive consequence outcomes (aka black swans) and contrarian takes on markets and technologies.

The Three Traps And A Devil For Entrepreneurs And Investors

In preview, whether you’re an entrepreneur or investor, three traps await you that are not always visible. To find the keys that unlock these three nearly perfect traps, you must discern the motives of others, the inescapable biases of yourself, and which game it is you’re being nudged to play.

Consider first a new off-Broadway play that brings Jean-Paul Sartre’s 1944 famed existential “No Exit” to life. Like me, you likely read it in school, got the gist and forgot the lesson.

Three characters, Ines, Estelle, Garcin arrive sequentially in a room quickly realizing they’ve already died, their holding pen is more of a permanent room in Hotel California, and they can suspend anxieties of eternal physical torture and dancing fires of hell: they’re there, but hell is…other people.

Ines is full of self-aware malice and attraction for Estelle. Estelle wants nothing of it, needing the attraction of a man. She denies, then confesses to the murder of her own adulterously conceived baby, displays unapologetic indifference to her act and dons a veil of vanity, in need of a mirror at all times so as to see how others see her so as to see further that she still exists. Garcin fakes a front of heroism but cowers in cowardice for abandoning both his wife in an affair and his countrymen in wartime. He needs redemption from the scrutinizing cynical and honest eye of Ines to affirm he’s not a coward, which she’ll never provide.

The second trap is the parable of the moth in the fridge. There’s a moth that got stuck in a fridge. The door is shut and it wants to escape. Time passes. At last the door swings open, the light comes on, the moth is free to escape—but it cannot. What it wants cannot overcome what it is. The pull of the light acts on the moth like a tractor beam. The moth cannot escape its own nature. Another perfectly conceived trap.

The third is the game you’re playing. In a recent interview my friend Michael Mauboussin told a story of a technology CEO, Jim Rutt, formerly of Network Solutions:

“By day, he would learn about the different probabilities, and look for poker tells and pot odds, and all this stuff, and by night he would play. He played in progressively tougher games, and won some, lost a little. Eventually, his uncle pulled him aside and said, “Jim, it’s time to be less worried about getting better, and more worried about finding easy games.”

The game you’re playing matters. As a venture capitalist, neither I nor most of the entrepreneurs we back at Lux Capital focus much on macro. But after spending time with uber-savvy and plugged-in macro maven Steve Drobny, I realized how naive this might be. On one hand, history’s great entrepreneurs may have invented and powered through regardless if we were on a gold standard or where interest rates stood. On the other, as I confessed to Drobny, underappreciating the macro forces might be akin to the futility of picking the best item at the best restaurant in the best neighborhood when Godzilla steps on your city mid-bite.

Now consider the Fed. You may praise or criticize Fed action as wise and deft maneuvering to stave an economic free-fall or reckless and unprecedented experimentation that ensures one. Regardless, you would be hard pressed to observe differently that the price of money and financial calculations that follow is not now “natural”.

One of the negative consequences is that money is has been cheap. In short, we don’t have a free market in money. The barrower has been subsidized and the investor or saver has been penalized. If you’re a company with a big loan outstanding your interest cost has gone down. On the other hand, if you’re a pensioner living on your savings, your income has shrunk. The other important threat is that because central banks pushed interest rates so low, people moved out the risk curve to get the returns they needed. People used to get 6 or 7% from U.S. Treasuries. Now they have to move to riskier investments like high yield bonds to get the same return.

Mindful of this, here’s what he reveals he’s doing with his own money:

Before the crisis, I used Treasuries for virtually all my money that was not invested in Oaktree. That allowed me to get a return of around 6% with total safety. Today, if I want to invest in Treasuries with one to five year maturities I only get 1%. That’s not enough because after taxes and inflation I lose money. So the answer is that I have increased my active investments. I’m still not maximally aggressive. By necessity, like everybody else in the world, I’ve moved out the risk curve – but in my case with caution.

[….]There actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive. I think of it like a comedy movie where a guy is considering some activity. On his right shoulder is sitting an angel in a white robe. He says: “No, don’t do it! It’s not prudent, it’s not a good idea, it’s not proper and you’ll get in trouble”. On the other shoulder is the devil in a red robe with his pitchfork. He whispers: “Do it, you’ll get rich”. In the end, the devil usually wins.

So the keys to escaping the traps are you must know the game you’re being (often unknowingly) nudged towards, the whims and motives of other people, and most importantly yourself.

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